Multiple Choice
In the context of Cost of Goods Sold, how does the perpetual inventory system differ from the periodic inventory system in recording inventory transactions?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following is considered a product cost under both the perpetual and periodic inventory systems?
A
Office supplies expense
B
Sales commissions
C
Direct materials used in production
D
Advertising expense
Verified step by step guidance1
Understand the concept of product costs: Product costs are costs directly associated with the production of goods. These include direct materials, direct labor, and manufacturing overhead. They are capitalized as inventory and expensed as cost of goods sold when the product is sold.
Differentiate between product costs and period costs: Period costs, such as office supplies expense, sales commissions, and advertising expense, are not directly tied to production. They are expensed in the period incurred and do not become part of inventory.
Recognize the role of inventory systems: Both perpetual and periodic inventory systems track inventory costs, but the classification of costs (product vs. period) remains the same under both systems.
Identify direct materials as a product cost: Direct materials are raw materials that are directly used in the production of goods. These costs are included in inventory under both perpetual and periodic systems.
Conclude that direct materials used in production are considered a product cost under both inventory systems, as they are directly tied to the manufacturing process and are capitalized as part of inventory.
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